FTI Consulting, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless stated otherwise. FTI Consulting is a global business advisory firm reporting in Corporate Finance, Forensic and Litigation Consulting (FLC), Economic Consulting, Technology, and Strategic Communications. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $806.7 | $723.6 | +11.5% (+13.8% excluding estimated FX impact) |
| Operating income | $66.8 | $79.3 | -15.7% |
| Operating margin | 8.3% | 11.0% | -2.7 percentage points |
| Net income | $47.5 | $59.3 | -19.8% |
| Diluted EPS | $1.34 | $1.66 | -$0.32 |
| Adjusted EBITDA (non-GAAP) | $78.4 | $90.5 | -13.3% |
| Adjusted EBITDA margin (non-GAAP) | 9.7% | 12.5% | -2.8 percentage points |
| Net cash used in operations | $254.2 | $203.8 | Use increased $50.4 |
| Free cash flow (non-GAAP) | $(272.2) | $(216.4) | Outflow increased $55.9 |
Revenue grew across all five segments, led by Corporate Finance and FLC. Higher compensation and SG&A costs—including costs associated with increased billable and non-billable headcount—outpaced revenue growth and weighed on earnings and margins. Adjusted EPS equaled GAAP diluted EPS in both periods.
Segments
- Corporate Finance: Revenue +18.4% to $300.0 million; Adjusted Segment EBITDA +2.8% to $55.0 million. Restructuring and business transformation demand improved; higher SG&A and pass-through revenue pressured margins.
- FLC: Revenue +12.7% to $173.4 million; Adjusted Segment EBITDA +7.8% to $18.6 million, supported by data and analytics, investigations, and health solutions demand.
- Economic Consulting: Revenue +2.2% to $169.6 million, but Adjusted Segment EBITDA fell to $14.2 million from $21.2 million. Lower utilization, realization, and billable rates, alongside higher compensation costs, reduced profitability.
- Technology: Revenue +12.6% to $90.6 million; Adjusted Segment EBITDA +15.0% to $15.4 million, with improved gross margin from a more favorable processing and hosting mix.
- Strategic Communications: Revenue +4.5% to $73.1 million, while Adjusted Segment EBITDA fell to $9.6 million from $15.7 million; higher compensation and SG&A costs pressured margins.
Cash, debt, and liquidity
- Cash and cash equivalents were $238.5 million at March 31, down from $491.7 million at December 31, 2022. Q1 operating cash use reflected annual incentive payments, salaries and operating costs, partly offset by higher collections.
- Days sales outstanding rose to 102 days from 96 days a year earlier; management attributed the increase to collections not keeping pace with revenue growth. Accounts receivable, net, was $988.1 million, up from $896.2 million at year-end.
- Long-term debt, net, was $360.6 million, including $45.0 million drawn on the $900 million revolving credit facility. The company reported $854.6 million of available borrowing capacity and compliance with debt covenants.
- $316.2 million principal of 2.0% convertible notes matures August 15, 2023. Notes were classified as long-term because management said it had the ability and intent to refinance them under the credit facility, which matures in 2027. Holders could convert during the period beginning April 1, 2023; the March 31 share-price-based if-converted value exceeded principal by $299.4 million.
- Q1 capital expenditures were $18.0 million; management expected a further $36 million to $45 million for the remainder of 2023. The company repurchased $17.8 million of stock under its program and had $460.7 million of authorization remaining.
Outlook, risks, and other notable items
The filing provides no specific revenue or earnings guidance. Management stated that operating cash flows, supplemented by credit-facility borrowings as needed, should fund cash requirements for at least the next 12 months, including the convertible-note maturity. Management noted that first-quarter cash needs are typically higher due to annual incentive compensation and that operating cash flows generally improve after the second quarter.
Key uncertainties cited include demand and engagement timing, recruiting and retaining professionals, utilization and billing rates, client collections and receivable credit risk, foreign-exchange movements, economic and capital-market conditions, competition, cybersecurity and data protection, and the ability to manage growth. The filing reported no material change in previously disclosed risk factors, no known legal proceedings expected to materially affect financial condition or results, and no material change in market-risk exposure. Disclosure controls were reported effective.
Important facts for investors to verify
- Whether DSO and receivable collections improve, and whether credit-loss provisions or write-offs rise.
- How the August 2023 convertible-note maturity was addressed, including any refinancing, repayment, or conversion and the resulting cost of debt and dilution.
- Whether headcount growth converts into stronger utilization, revenue, and margins—particularly in Economic Consulting and Strategic Communications.
- Whether seasonal operating cash outflows reverse as management expects, and how cash, borrowing, repurchases, and planned capital expenditures evolve.
- How much future performance depends on success-fee timing, demand conditions, and foreign-exchange movements.